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10 Trading lessons by Mark Douglas (a review of Trading in the Zone)

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In this interesting and thoroughly recommended book, Mark Douglas analyses from a psychological perspective the most common issues related to trading, offering the recipes to face them in the best way possible.

The firsts problems are related to pointing out the addiction that new people experience when they can get a profit out from a random trade. With that comes the expectation of getting a random winning trade now and then, even after a negative streak and regardless of the overall scenario. The recorded memory of that great moment where luck struck, motivates to keep trying.

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Another severe problem which is the reason why even smart people fail at times is due to the achieved success in other business endeavours.
 A good entrepreneur relies on his skills to control the environment and the situation. However, in trading, the winning factor lies in the ability to be able to adapt rapidly to the actual scenario. Being able to react to different contexts makes it possible to make a profit from what drives those changes.

Trading inherently assumes the risk of a potential loss.

What determines the skills of a good trader is the reaction to a given loss.

Nobody likes losing money, and when that happens, it always has an impact on anyone’s mood.

A good trader needs to understand that this risk is part of the business, and accepting it makes you on the right path to avoid spontaneous reactions which are mainly driven by uncontrolled emotions.

It happens the same when an excellent trading opportunity is missed. Even in this case, it’s critical not to surrender to your emotions. Your compulsive ego wants you to chase pumps in a compensatory effort, and that may be more counterproductive than anything.
 Emotional control is critical, without it even the best technical analyst will be lost.

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Another linked problem is about the risk perception. A good trader doesn’t rely on the result of his last trade to evaluate his overall trading ability.
 The same whole scenario inherently has the same risk. Don’t let a losing streak of trades change your perception about the situation without an objective evaluation.

The market doesn’t care about your feelings. If you’re following your risk management rules and your technical assessments aren’t being invalidated, keep trading the market according to your set strategy.

Mark Douglas developed a well-developed concept known as ​”the uncertain principle.”

It is not possible to predict the future with absolute accuracy. Anything can happen anytime. Given that, as traders, we have to consider the probabilities for a given setup to strike in and adjust our mindset considering it.
 A trader needs to be in harmony with the market. Many traders end up to challenge the market,

getting burned inevitably. Ultimately it’s better to adapt to the trend rather than try to fit the market to your current mood or random idea.

Here are some of the quotes that I like the most from the book:

“I haven’t seen much correlation between good trading and intelligence. Some outstanding traders are quite intelligent, but a few aren’t. Many outstanding, intelligent people are horrible traders. Average intelligence is enough. Beyond that, emotional makeup is more important.”

“Ninety-five percent of the trading errors you are likely to make — causing the money to just evaporate before your eyes — will stem from your attitudes about being wrong, losing money, missing out, and leaving money on the table. What I call the four primary trading fears.”

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“Why do you think unsuccessful traders are obsessed with market analysis? They crave the sense of certainty that analysis appears to give them. Although few would admit it, the truth is that the typical trader wants to be right on every single trade. He is desperately trying to create certainty where it just doesn’t exist.”

Moreover, finally here are five quotes from Mark Douglas’s book which should be marked permanently on your skin, as a trader:

Five fundamental truths:

1. Anything can happen.

2. You don’t need to know what is going to happen next in order to make money.

3. There is a random distribution between wins and losses for any given set of variables that define an edge.

4. An edge is nothing more than an indication of a higher probability of one thing happening over another.

5. Every moment in the market is unique.

Originally written by CryptoRand, revised and edited by L4z0r.

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